Balanced Scorecard and Strategic Decision Making - Essay Example

It reflects the following core principles: (1) No single measure can provide a clear performance target or focus attention on all the critical areas of the business. (2) The Balanced Scorecard seeks to minimize the common problem of information overload on business leaders by limiting the number of measures used. (3) The approach is a way to clarify, simplify and then operationalize the Mission (Purpose/Values/ Behaviours/Strategy) at the top of the organization (Johnson and Kaplan 1987). The Balanced Scorecard is a measurement framework and concentrates attention on the four primary perspectives of corporate performance.

Each perspective focuses on a particular question fundamental to the future prosperity of the overall business (Kaplan and Cooper 1997). Australian organizations have utilized different types of performance measurement covering financial, customer, internal and growth levels. From financial perspective, Australian organization use techniques to measure: profitability (Net Profit Margin and Return on Total Funds), Shareholder Income (Dividend Level and Dividend Cover), company's growth (Sales Trend (year on year growth)) and stability (Gearing (Debt: Equity) Ratio Interest Cover (times)).

From customer perspective, it is possible to measure: Customer Care, quality, availability, brand values. From internal perspective, it is possible to measure Staff Retention and employees development, performance and communication. From growth perspective, it is possible to measure innovation and investment opportunities, creativity and company's performance (sales and profit) (Johnson and Kaplan 1987). For each of the Business Objectives the Strategic Key Performance Indicator (SKPI) represents the measurement tool.

Related to each SKPI a stretching but achievable target level of performance should be set and clearly communicated to all relevant staff. To achieve this target, specific initiatives need to be identified, implemented and reviewed. The Balanced Scorecard therefore drives performance throughout the organisation. There is a direct line of integration between the Vision of the organization and the Strategy that is being pursued. It also provides the top level scoring' mechanism to ensure each aspect of the business is on-track' (Kaplan and Norton 1992).

The financial ratios are applied to the business to examine current achievement and trends. They can also be applied to competitors to enable external benchmarks' of performance to be established. There are many potential ratios available but these comprise those that would be regarded as a core set' designed to provide an overall insight into the business and the challenges facing management. They reflect the typical approaches used by corporate management, business analysts and bankers (Lynch and Cross 1991).

The analytical ratios can individually be helpful in the review of past performance, future projections or competitor comparison. In addition there are several vital linkages that should be recognized to further enhance understanding and insight. From an internal perspective the primary driver of performance and success is widely acknowledged to be the competence and commitment of the workforce at all levels. Employees are generally concerned with two aspects: It is these five aspects of Quality, Cost, Delivery, Safety and Morale (QCDSM)